PINX:RMES Quarterly Report 10-Q Filing - 7/31/2012

Effective Date 7/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 

FORM 10-Q

 
[ X ]
QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July 31, 2012

[    ]
TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______to_______

Commission file number 000-52055
 
RED METAL RESOURCES LTD.
(Exact name of small business issuer as specified in its charter)
 
Nevada
(State or other jurisdiction
of incorporation or organization)
20-2138504
(I.R.S. Employer
Identification No.)
 
195 Park Avenue, Thunder Bay Ontario, Canada P7B 1B9
(Address of principal executive offices) (Zip Code)
 
(807) 345-7384
(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [ X ] Yes [   ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 [ X ] Yes [   ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filed,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer       
o
(Do not check if a smaller reporting company)
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [   ] Yes [ X ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of September 13, 2012, the number of shares of the registrant’s common stock outstanding was 17,956,969.
 


 
 

 
 
TABLE OF CONTENTS
 
PART I—FINANCIAL INFORMATION
1
   
Item 1.  Financial Statements.
1
CONSOLIDATED BALANCE SHEETS
1
CONSOLIDATED STATEMENTS OF OPERATIONS
2
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
6
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.
22
Item 4.  Controls and Procedures.
22
   
PART II—OTHER INFORMATION
22
   
Item 1.  Legal Proceedings.
22
Item 1A.  Risk Factors.
23
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
23
Item 3.  Defaults upon Senior Securities.
23
Item 4.  Mine Safety Disclosures
23
Item 5.  Other Information.
23
Item 6.  Exhibits.
23
 
 
 

 
 
PART I—FINANCIAL INFORMATION
 
 
Item 1.  Financial Statements.
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
   
July 31, 2012
   
January 31, 2012
 
   
(UNAUDITED)
       
ASSETS
 
Current assets
           
             
Cash
  $ 43,516     $ 24,467  
Prepaids and other receivables
    3,908       45,156  
Total current assets
    47,424       69,623  
                 
Equipment
    14,306       16,713  
Unproved mineral properties
    902,185       796,828  
Total assets
  $ 963,915     $ 883,164  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
Current liabilities
               
                 
Accounts payable
  $ 263,167     $ 206,675  
Accrued liabilities
    164,176       121,701  
Due to related parties
    1,272,666       905,562  
Notes payable to related party
    287,428       236,820  
Total liabilities
    1,987,437       1,470,758  
                 
Stockholders' deficit
               
                 
Common stock, $0.001 par value, authorized 500,000,000, 17,956,969 and 17,189,634 issued and outstanding at July 31, 2012 and January 31, 2012
    17,957       17,190  
Additional paid in capital
    5,736,278       5,466,744  
Deficit accumulated during the exploration stage
    (6,679,398 )     (5,985,007 )
Accumulated other comprehensive loss
    (98,359 )     (86,521 )
Total stockholders' deficit
    (1,023,522 )     (587,594 )
Total liabilities and stockholders' deficit
  $ 963,915     $ 883,164  
 
The accompanying notes are an integral part of these interim consolidated financial statements
 
 
1

 
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
Three months ended
July 31,
   
Six months ended
July 31,
   
From January 10,
2005 (Inception)
 
   
2012
   
2011
   
2012
   
2011
   
to July 31, 2012
 
Revenue
                             
                               
Royalties
  $ -     $ -     $ -     $ -     $ 15,658  
Geological services
    -       -       7,804       -       7,804  
Total revenue
    -       -       7,804       -       23,462  
                                         
Operating expenses
                                       
Administration
    10,086       10,072       20,201       30,758       339,397  
Advertising and promotion
    18,570       60,559       41,544       101,086       568,779  
Amortization
    1,171       264       2,407       264       5,514  
Automobile
    1,230       13,425       5,474       19,400       98,855  
Bank charges
    2,108       1,497       3,476       4,133       26,462  
Consulting fees
    79,410       90,413       160,122       156,633       945,384  
Interest on current debt
    60,642       16,841       75,674       35,447       288,782  
IVA expense
    811       -       3,164       -       36,944  
Mineral exploration costs
    52,376       477,595       183,196       507,542       2,088,450  
Office
    5,454       11,978       14,419       15,315       67,356  
Professional development
    -       -       -       -       5,116  
Professional fees
    18,407       58,351       76,422       106,256       770,559  
Rent
    3,393       3,498       6,801       6,954       62,072  
Regulatory
    7,709       7,400       28,341       15,398       105,420  
Travel and entertainment
    7,880       10,568       29,534       29,783       322,214  
Salaries, wages and benefits
    21,464       20,006       45,059       25,026       181,770  
Stock based compensation
    -       -       -       -       527,318  
Foreign exchange loss
    (909 )     374       (565 )     11,213       14,387  
Write-down of unproved mineral properties
    6,926       -       6,926       2,909       248,081  
Total operating expenses
    296,728       782,841       702,195       1,068,117       6,702,860  
                                         
Net loss
  $ (296,728 )   $ (782,841 )   $ (694,391 )   $ (1,068,117 )   $ (6,679,398 )
                                         
                                         
Net loss per share - basic and diluted
  $ (0.02 )   $ (0.05 )   $ (0.04 )   $ (0.07 )        
                                         
Weighted average number of shares outstanding - basic and diluted
    17,956,969       16,939,634       17,772,639       14,525,177          
 
The accompanying notes are an integral part of these interim consolidated financial statements
 
 
2

 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)

 
 
Common Stock Issued
         
Accumulated
       
 
 
Number of
Shares
   
Amount
   
Additional
Paid-in
Capital
   
Accumulated
Deficit
   
Other
Comprehensive
Income / (Loss)
   
Total
 
Balance at January 10, 2005 (Inception)
    -     $ -     $ -     $ -     $ -     $ -  
 
                                               
Net loss
    -       -       -       (825 )     -       (825 )
 
                                               
Balance at January 31, 2005
    -       -       -       (825 )     -       (825 )
 
                                               
Common stock issued for cash
    5,525,000       5,525       53,725       -       -       59,250  
Common stock adjustment
    45       -       -       -       -       -  
Donated services
    -       -       3,000       -       -       3,000  
Net loss
    -       -       -       (12,363 )     -       (12,363 )
 
                                               
Balance at January 31, 2006
    5,525,045       5,525       56,725       (13,188 )     -       49,062  
 
                                               
Donated services
    -       -       9,000       -       -       9,000  
Net loss
    -       -       -       (43,885 )     -       (43,885 )
 
                                               
Balance at January 31, 2007
    5,525,045       5,525       65,725       (57,073 )     -       14,177  
 
                                               
Donated services
    -       -       2,250       -       -       2,250  
Return of common stock to treasury
    (1,750,000 )     (1,750 )     1,749       -       -       (1 )
Common stock issued for cash
    23,810       24       99,976       -       -       100,000  
Net loss
    -       -       -       (232,499 )     -       (232,499 )
 
                                               
Balance at January 31, 2008
    3,798,855       3,799       169,700       (289,572 )     -       (116,073 )
 
                                               
Common stock issued for cash
    357,147       357       1,299,643       -       -       1,300,000  
Net loss
    -       -       -       (1,383,884 )     -       (1,383,884 )
Foreign currency exchange loss
    -       -       -       -       (21,594 )     (21,594 )
                                                 
Balance at January 31, 2009
    4,156,002       4,156       1,469,343       (1,673,456 )     (21,594 )     (221,551 )
                                                 
Common stock issued for cash
    1,678,572       1,678       160,822       -       -       162,500  
Common stock issued for debt
    3,841,727       3,843       1,148,675       -       -       1,152,518  
Net loss
    -       -       -       (710,745 )     -       (710,745 )
Foreign currency exchange loss
    -       -       -       -       (35,816 )     (35,816 )
 
                                               
Balance at January 31, 2010
    9,676,301       9,677       2,778,840       (2,384,201 )     (57,410 )     346,906  
                                                 
Common stock issued for cash
    540,000       540       134,460       -       -       135,000  
Net loss for the year ended January 31, 2011
    -       -       -       (672,618 )     -       (672,618 )
Foreign currency exchange loss
    -       -       -       -       (13,438 )     (13,438 )
                                                 
Balance at January 31, 2011
    10,216,301       10,217       2,913,300       (3,056,819 )     (70,848 )     (204,150 )
                                                 
Common stock issued for cash
    6,290,000       6,290       1,821,810       -       -       1,828,100  
Common stock issued for debt
    433,333       433       129,567       -       -       130,000  
Net loss for the six months ended July 31, 2011
    -       -       -       (1,068,117 )     -       (1,068,117 )
Foreign currency exchange loss
    -       -       -       -       (19,004 )     (19,004 )
                                                 
Balance at July 31, 2011
    16,939,634       16,940       4,864,677       (4,124,936 )     (89,852 )     666,829  
                                                 
Warrants exercised for cash
    83,333       83       24,916       -       -       24,999  
Warrants exercised for debt
    166,667       167       49,833       -       -       50,000  
Stock options
    -       -       527,318       -       -       527,318  
Net loss for the six months ended January 31, 2012
    -       -       -       (1,860,071 )     -       (1,860,071 )
Foreign currency exchange gain
    -       -       -       -       3,331       3,331  
                                                 
Balance at January 31, 2012
    17,189,634       17,190       5,466,744       (5,985,007 )     (86,521 )     (587,594 )
                                                 
Warrants exercised for cash
    500,000       500       149,500       -       -       150,000  
Common stock issued for cash
    267,335       267       120,034       -       -       120,301  
Net loss for the six months ended July 31, 2012
    -       -       -       (694,391 )     -       (694,391 )
Foreign currency exchange loss
    -       -       -       -       (11,838 )     (11,838 )
                                                 
Balance at July 31, 2012
    17,956,969     $ 17,957     $ 5,736,278     $ (6,679,398 )   $ (98,359 )   $ (1,023,522 )

 The accompanying notes are an integral part of these interim consolidated financial statements
 
3

 

RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
For the six months
Ended July 31,
   
From January 10,
2005 (Inception)
 
   
2012
   
2011
   
to July 31, 2012
 
Cash flows used in operating activities:
                 
Net loss
  $ (694,391 )   $ (1,068,117 )   $ (6,679,398 )
Adjustments to reconcile net loss to net cash used in operating activities:
                 
Donated services and rent
    -       -       14,250  
Write-down of unproved mineral properties
    6,926       2,909       248,082  
Amortization
    2,407       264       5,514  
Stock based compensation
    -       -       527,318  
                         
Changes in operating assets and liabilities:
                       
Prepaids and other receivables
    41,248       (27,911 )     (3,908 )
Accounts payable
    56,492       (47,748 )     263,168  
Accrued liabilities
    42,475       (3,540 )     304,900  
Due to related parties
    367,104       (99,033 )     1,610,689  
Accrued interest on notes payable to related party
    9,774       3,318       92,520  
                         
Net cash used in operating activities
    (167,965 )     (1,239,858 )     (3,616,865 )
                         
Cash flows used in investing activities:
                       
Purchase of fixed assets
    -       (19,820 )     (19,820 )
Acquisition of unproved mineral properties
    (112,283 )     (156,605 )     (1,289,321 )
                         
Net cash used in investing activities
    (112,283 )     (176,425 )     (1,309,141 )
                         
Cash flows provided by financing activities:
                       
Cash received on issuance of notes payable to related party
    96,944       93,283       1,258,223  
Repayment of related party notes, including accrued interest
    (56,553 )     (14,382 )     (70,935 )
Proceeds from issuance of common stock
    270,301       1,828,099       3,880,150  
Net cash provided by financing activities
    310,692       1,907,000       5,067,438  
                         
Effects of foreign currency exchange
    (11,395 )     (19,004 )     (97,916 )
                         
Increase in cash
    19,049       471,713       43,516  
                         
Cash, beginning
    24,467       8,655       -  
                         
Cash, ending
  $ 43,516     $ 480,368     $ 43,516  
                         
Supplemental disclosures:
                       
Cash paid for:
                       
Income tax
  $ -     $ -     $ -  
Interest
  $ (6,553 )   $ (1,778 )   $ (7,883 )

The accompanying notes are an integral part of these interim consolidated financial statements
 
 
4

 

RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2012
(UNAUDITED)

 
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
 
Nature of Operations
Red Metal Resources Ltd. (the “Company”) was incorporated on January 10, 2005, under the laws of the State of Nevada.  On August 21, 2007, the Company acquired a 99% interest in Minera Polymet Limitada (“Polymet”), a limited liability company formed on August 21, 2007, under the laws of the Republic of Chile. The Company is involved in acquiring and exploring mineral properties in Chile.  The Company has not determined whether its properties contain mineral reserves that are economically recoverable.  

Unaudited Interim Consolidated Financial Statements
The unaudited interim financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended January 31, 2012, included in the Company’s Annual Report on Form 10-K, filed with the SEC. The interim unaudited financial statements should be read in conjunction with those financial statements included in Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the six month period ended July 31, 2012, are not necessarily indicative of the results that may be expected for the year ending January 31, 2013.

Recent Accounting Pronouncements
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.
 
NOTE 2 – RELATED-PARTY TRANSACTIONS

The following amounts were due to related parties as at:
 
   
July 31, 2012
   
January 31, 2012
 
             
Due to a company owned by an officer
  $ 270,944     $ 190,608  
Due to a company controlled by directors
    939,136       658,950  
Due to companies controlled by major shareholders
    58,456       51,957  
Due to an officer of Chilean subsidiary
    4,130       4,047  
Total due to related parties (a)
  $ 1,272,666     $ 905,562  
                 
Note payable to a related party (b)
  $ -     $ 56,164  
Note payable to a director (c)
    97,711       55,129  
Note payable to a chief financial officer (c)
    8,847       8,502  
Note payable to a major shareholder (c)
    114,116       53,115  
Note payable to a company controlled by directors (c)
    66,754       63,910  
Total notes payable to related parties
  $ 287,428     $ 236,820  

(a) Amounts due to related parties are unsecured, are due on demand and bear no interest.
(b) The note payable was due on demand, unsecured and bore interest at 6% per annum. The principle of $50,000 and accumulated interest of $6,553 were paid in full on March 13, 2012.
(c) The notes payable to related parties are due on demand, unsecured and bear interest at 8% per annum.  
 
 
5

 
 
Transactions with Related Parties

The Company incurred the following expenses with related parties during the six months ending:
 
   
July 31, 2012
   
July 31, 2011
 
Consulting fees and other business expenses paid to a company owned by the Chief Financial Officer
  $ 152,768     $ 145,766  
Advertising and promotion, mineral exploration and other business expenses paid to a company controlled by two directors
  $ 241,015     $ 318,157  
Administration, automobile, rental, and other business expenses paid to a company controlled by a major shareholder.
  $ 14,587     $ 37,526  
Administration expenses paid to an officer of the Company’s Chilean subsidiary.
  $ 26,211     $ 21,797  

NOTE 3 – UNPROVED MINERAL PROPERTIES

The Company has four unproved mineral properties which it is currently exploring and evaluating: the Farellon, Perth, Mateo, and Veta Negra. These properties consist of both mining and exploration claims.

As of July 31, 2012, the Company had spent the total of $902,185 on acquiring and maintaining unproved mineral properties:

Mineral Claims
 
Balance, January 31, 2012
   
Additions
   
Property Taxes Paid / Accrued
   
Write off
   
Balance,
July 31, 2012
 
Farellon Project
                             
Farellon Alto 1-8(1)
  $ 552,976     $ -     $ 6,450     $ -     $ 559,426  
Cecil
    41,746       -       12,272       -       54,018  
      594,722       -       18,722       -       613,444  
Perth Project
                                       
Perth
    19,371       20,030       35,642       -       75,043  
                                         
Mateo Project
                                       
Margarita
    18,195       -       904       -       19,099  
Che (2)
    23,895       -       1,184       -       25,079  
Irene
    47,174       -       968       -       48,142  
Mateo
    33,065       15,634       1,936       -       50,635  
      122,329       15,634       4,992       -       142,955  
Veta Negra Project
                                       
Veta Negra (3)
    18,480       3,816       10,037       (5,000 )     27,333  
Pibe(4)
    40,000       -       3,410       -       43,410  
      58,480       3,816       13,447       (5,000 )     70,743  
Generative Claims
                                       
      1,926       -       -       (1,926 )     -  
                                         
Total Costs
  $ 796,828     $ 39,480     $ 72,803     $ (6,926 )   $ 902,185  
 
(1) The claim is subject to a 1.5% royalty on the net sales of minerals extracted from the property to a total of $600,000. The royalty payments are due monthly once exploitation begins, and are subject to minimum payments of $1,000 per month. The Company has no obligation to pay the royalty if it does not commence exploitation. 
(2) The claims are subject to a 1% royalty on the net sales of minerals extracted from the property to a total of $100,000. The royalty payments are due monthly once exploitation begins and are not subject to minimum payments. The Company has no obligation to pay the royalty if it does not commence exploitation.
(3) The option to purchase contract has a term of 31 months with semi-annual payments totaling $57,500. The claim is subject to a 1.5% royalty on the net sales of minerals extracted to a total of $250,000. The royalty payments are due monthly once exploitation begins.
(4) The option to purchase contract has a term of 36 months with semi-annual payments totaling $500,000. The claims are subject to a 1.5% royalty on the sales of minerals extracted to a total of $1,000,000 with no monthly minimum. The payments are due once exploitation begins. 
 
 
6

 
 
Abandoned claims
During the six months ended July 31, 2012, the Company decided to abandon the option to purchase the Exon claim, a part of the Veta Negra option to purchase contract, and wrote off $5,000 in acquisition costs. The claim was a subject to semi-annual option payments totaling $45,000 and a 1.5% royalty on the net sales of minerals extracted to a total of $250,000. In addition, the Company abandoned several generative mineral claims with a paid cost of $1,926 as it decided not to pursue exploration of the claims. 
 
NOTE 4 – COMMON STOCK
 
On April 12, 2012, the Company engaged in a private offering of units pursuant to which it issued 267,335 units at a price of $0.45 per unit for cash of $120,301. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant is exercisable at $0.65 for two years.
 
On March 5, 2012, warrants to purchase 400,000 shares of common stock were exercised at $0.30 per share.  The Company received $120,000 for this exercise.
 
On February 7, 2012, warrants to purchase 100,000 shares of common stock were exercised at $0.30 per share.  The Company received $30,000 for this exercise.

Warrants
     
Balance, January 31, 2012
    7,459,666  
Granted
    267,335  
Exercised
    (500,000 )
Expired
    (40,000 )
Balance, July 31, 2012
    7,187,001  

The weighted average life and weighted average exercise price of the warrants at July 31, 2012, is 0.72 years and $0.51, respectively.

Options
The weighted average life and weighted average exercise price of the 1,040,000 options outstanding at July 31, 2012 is 1.09 years and $0.50, respectively
 
 
7

 
 
NOTE 5 – CONTINGENCY

During the six months ended July 31, 2012, the Company received a penalty notice from the US Internal Revenue Service (“IRS”) for failure to file a certain tax form within prescribed deadline. The Company believes that it filed the questioned form on time and submitted supporting documentation to the IRS appeal department; therefore, the Company has not accrued for the penalty which was assessed for $10,000 plus accrued interest of $146.


NOTE 6 – SUBSEQUENT EVENT

On August 21, 2012, the Company acquired four additional mining claims which were added to our Farellon Project. The total amount paid for the acquisition of these claims was approximately $8,500 US.
 
 
8

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Forward-Looking Statements

This quarterly report on form 10-Q filed by Red Metal Resources Ltd. contains forward-looking statements. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “plan,” “forecast,” and similar expressions are intended to identify forward-looking statements. Certain important risks could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of these risks include, among other things:
 
general economic conditions, because they may affect our ability to raise money
 
our ability to raise enough money to continue our operations
 
changes in regulatory requirements that adversely affect our business
 
changes in the prices for minerals that adversely affect our business
 
political changes in Chile, which could affect our interests there
 
other uncertainties, all of which are difficult to predict and many of which are beyond our control
We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this report. We are not obligated to update these statements or publicly release the results of any revisions to them to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. You should refer to, and carefully review, the information in future documents we file with the Securities and Exchange Commission.

General

You should read this discussion and analysis in conjunction with our interim unaudited consolidated financial statements and related notes included in this Form 10-Q and the audited consolidated financial statements and related notes included in our annual report on Form 10-K for the fiscal year ended January 31, 2012. The inclusion of supplementary analytical and related information may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.

Overview

Red Metal is a mineral exploration company engaged in locating, and eventually developing, mineral resources in Chile. Our business strategy is to identify, acquire and explore prospective mineral claims with a view to either developing them ourselves or, more likely, finding a joint venture partner with the mining experience and financial means to undertake the development. All of our claims are in the Candelaria IOCG belt in the Chilean Coastal Cordillera.

Since the revenue we have received from our operations is very minimal, we are dependent upon the equity markets for our working capital. Despite the current market volatility, prices of copper and gold overall are moving in a positive direction and we are optimistic that we can raise equity capital under these market conditions. We completed an offering of 6,723,333 units on April 7, 2011, at $0.30 per unit. Each unit consisted of one share of our common stock and one warrant for the purchase of one share of common stock exercisable at $0.50 per share for two years. We realized net cash proceeds of $1,862,462 from this offering and the payment of $130,000 in debt. We used the cash proceeds to finance our exploration programs on the Farellon and Mateo properties.

On May 18, 2012, we held our annual meeting of stockholders. At the meeting our stockholders approved the Amended and Restated Red Metal Resources Ltd. 2011 Equity Incentive Plan (the “Amended Plan”).  Upon receipt of stockholder approval, the Amended Plan became effective.  Under the terms of the Amended Plan, the aggregate number of the Company’s shares which may be awarded to eligible persons, including officers, directors and consultants, may not exceed 10% of the aggregate number of shares issued and outstanding from time to time and the total number of shares which may be reserved for issuance to any one individual under the Amended Plan may not exceed 5% of the outstanding shares in any 12 month period. The exercise price for the shares underlying each option shall be determined by the board of directors (or a committee, if one is appointed) on the basis of the market price, as defined in the Amended Plan.
 
 
9

 
 
The original Red Metal Resources Ltd. 2011 Equity Incentive Plan was adopted by the board of directors on September 2, 2011. Under this plan we issued options to purchase 1,040,000 shares of our common stock to directors, officers, employees and consultants who provide services to Red Metal.  The options have an exercise price of $0.50 per share and a term of two years.

The Company is continuing its exploration activities, as more fully described below in the section titled, “Unproved Mineral Properties”.

Consistent with our historical practices, we continue to monitor our costs in Chile by reviewing our mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. Currently, we have three employees in Chile and engage part time assistants during our exploration programs. Most of our support — such as, vehicles, office and equipment — is supplied under short-term contracts. The only long-term commitments that we have are for royalty payments on four of our mineral claims – Farellon, Che, Veta Negra and Pibe. These royalties are payable once exploitation begins. Two of the above claims – Veta Negra and Pibe – have option payments payable during the next three years under the option to purchase contracts.

The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists and geo-technicians, and drillers and drilling equipment. Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as Red Metal are competing for the available resources, if we are unable to find the personnel and equipment that we need when we need them and at the prices that we have estimated today, we might have to revise or postpone our plans. 

Results of operations

summary of financial condition

Table 1 summarizes and compares our financial condition at the six months ended July 31, 2012, to the year-ended January 31, 2012.

Table 1: Comparison of financial condition
   
July 31, 2012
   
January 31, 2012
 
Working capital deficit
  $ (1,940,013 )   $ (1,401,135 )
Current assets
  $ 47,424     $ 69,623  
Unproved mineral properties
  $ 902,185     $ 796,828  
Total liabilities
  $ 1,987,437     $ 1,470,758  
Common stock and additional paid in capital
  $ 5,754,235     $ 5,483,934  
Deficit
  $ (6,679,398 )   $ (5,985,007 )
 
comparison of prior quarterly results
 
Table 2 and Table 3 present selected financial information for each of the past eight quarters.
 
Table 2: Summary of quarterly results (October 31, 2011 – July 31, 2012)
   
October 31,
2011
   
January 31,
2012
   
April 30,
2012
   
July 31,
2012
 
Revenue
  $     $     $ 7,804     $  
Net loss
  $ (1,285,535 )   $ (574,536 )   $ (397,663 )   $ (296,728 )
Basic and diluted loss per share
  $ (0.08 )   $ (0.03 )   $ (0.02 )   $ (0.02 )
 
 
10

 
 
Table 3: Summary of quarterly results (October 31, 2010 – July 31, 2011)
   
October 31,
2010
   
January 31,
2011
   
April 30,
2011
   
July 31,
2011
 
Revenue
  $     $     $     $  
Net loss
  $ (154,436 )   $ (203,052 )   $ (285,276 )   $ (782,841 )
Basic and diluted loss per share
  $ (0.02 )   $ (0.02 )   $ (0.02 )   $ (0.05 )

During the quarters ended October 31, 2011, and January 31, 2012, we experienced substantially higher operating expenses mainly due to the drilling program on the Farellon property and exploration campaigns on other properties, including associated travel and geological consulting expenses, which we incurred between May and September 2011, and subsequent data analysis. During the quarter ended October 31, 2011, we granted 1,040,000 stock options to certain directors, employees, and consultants that resulted in a non-cash expense of $527,318, increasing our net loss. During the quarter ended January 31, 2012, we began the due diligence review to potentially list our shares on the TSX Venture Exchange that resulted in higher legal costs. During the quarter ended April 30, 2012, we prepared an updated NI 43-101 report on our Farellon property, which resulted in increased exploration expenses, and we continued with the due diligence review relating to listing our common stock on the TSX Venture Exchange, which resulted in increased professional and regulatory fees. During the quarter ended July 31, 2012, we kept our exploration and due diligence activities at a moderate level, which resulted in decrease in our net loss for the quarter.

Selected Financial Results

three and six months ended July 31, 2012 and July 31, 2011

Our operating results for the three and six months ended July 31, 2012 and 2011, and the changes in the operating results between those periods are summarized in Table 4.
 
Table 4: Changes in operating results
   
Three months
ended July 31,
   
Changes between the periods ended July 31, 2012
   
Six months
ended July 31,
   
Changes between the periods ended July 31, 2012
 
   
2012
   
2011
   
and 2011
   
2012
   
2011
   
and 2011
 
Revenue
                                   
Geological services
  $ -     $ -     $ -     $ 7,804     $ -     $ 7,804  
                                                 
Operating Expenses
                                               
Administration
    10,086       10,072       14       20,201       30,758       (10,557 )
Advertising and promotion
    18,570       60,559       (41,989 )     41,544       101,086       (59,542 )
Amortization
    1,171       264       907       2,407       264       2,143  
Automobile
    1,230       13,425       (12,195 )     5,474       19,400       (13,926 )
Bank charges
    2,108       1,497       611       3,476       4,133       (657 )
Consulting fees
    79,410       90,413       (11,003 )     160,122       156,633       3,489  
Interest on current debt
    60,642       16,841       43,801       75,674       35,447       40,227  
IVA expense
    811       -       811       3,164       -       3,164  
Mineral exploration costs
    52,376       477,595       (425,219 )     183,196       507,542       (324,346 )
Office
    5,454       11,978       (6,524 )     14,419       15,315       (896 )
Professional fees
    18,407       58,351       (39,944 )     76,422       106,256       (29,834 )
Rent
    3,393       3,498       (105 )     6,801       6,954       (153 )
Regulatory
    7,709       7,400       309       28,341       15,398       12,943  
Travel and entertainment
    7,880       10,568       (2,688 )     29,534       29,783       (249 )
Salaries and wages
    21,464       20,006       1,458       45,059       25,026       20,033  
Foreign exchange loss
    (909 )     374       (1,283 )     (565 )     11,213       (11,778 )
Write-down of unproved mineral properties
    6,926       -       6,926       6,926       2,909       4,017  
Total operating expenses
    296,728       782,841       (486,113 )     702,195       1,068,117       (365,922 )
Net loss
  $ 296,728     $ 782,841     $ (486,113 )   $ 694,391     $ 1,068,117     $ (373,726 )
 
 
11

 
 
Revenue. Our revenue for the six months ended July 31, 2012, was $7,804; this revenue was generated from geological services that we provided to an unaffiliated company. We did not generate any revenue during the six months ended July 31, 2011. Due to the exploration rather than production nature of our business, we do not expect to have significant operating revenue within the next year.

Operating expenses. Our operating expenses decreased by $486,113 or 62%, from $782,841 for the three months ended July 31, 2011, to $296,728 for the three months ended July 31, 2012. 

On a year-to-date basis, our operating expenses decreased by $365,922, or 34%, from $1,068,117 for the six months ended July 31, 2011, to $702,195 for the six months ended July 31, 2012.

The following are our most significant year-to-date changes:

 
During the six month ended July 31, 2011, we started the drilling program on our Farellon property as well as increased exploration and mapping activities on Mateo and Veta Negra properties, which resulted in mineral exploration expenditures of $507,542. During the six months ended July 31, 2012, we did not run an active drilling campaign but focused our resources on the detailed mapping of the Farellon property and prepared an updated NI 43-101 report based on the last year’s drilling results, which resulted in the exploration expenditures of $183,196.
 
During the quarter ended July 31, 2011, we hired additional personnel to support our drilling campaign on the Farellon property and elevated exploration activities on other properties. Due to the on-going mapping and sampling activities we maintained most of additional staff throughout the year which resulted in comparative wage increase of $20,033 for the six months ended July 31, 2012.
 
Our advertising and promotion expense decreased from $101,086 to $41,544, or 59% due to decreased investor relations activities during the six months ended July 31, 2012, compared to the six months ended July 31, 2011.
 
During the six months ended July 31, 2012, we expensed $75,674 in interest on current debt, an increase of $40,227 compared to $35,447 in interest expensed during the six months ended July 31, 2011. This increase was associated with larger outstanding payables, mainly to related parties.
 
Our professional and legal fees decreased by $29,834, from $106,256 incurred during the six months ended July 31, 2011, to $76,422 for the six months ended July 31, 2012. Higher professional fees incurred during 2011 were associated with the private equity financing that we completed in May of 2011 and filing of the registration statement on form S-1.
 
We restructured our administrative operations, which resulted in savings of $10,557 for the six month period ended July 31, 2012, compared to the period ended July 31, 2011.
 
During the six months ended July 31, 2012, we wrote down $6,926 in mineral property acquisition costs after we decided to drop the option to purchase the Exon claim and several other generative exploration claims. During the six months ended July 31, 2011, we wrote down $2,909 after we abandoned some of our Mateo exploration claims.
 
Our regulatory fees increased by $12,943, from $15,398 incurred during the six months ended July 31, 2011, to $28,341 incurred during the six months ended July 31, 2012. This increase was associated in part with our due diligence review for the purpose of listing our common stock on the TSX Venture Exchange, and in part with the distribution of the proxy statement for our annual meeting of the stockholders that we held on May 18, 2012.
 
Due to the decrease in our mineral exploration activities, our automobile expense decreased by $13,934, from $19,408 incurred during the six months ended July 31, 2011, to $5,474 incurred during the six months ended July 31, 2012.
 
Net loss. We had a net loss of $694,391 for the six months ended July 31, 2012, compared to a net loss of $ 1,068,117 for the six months ended July 31, 2011. The $373,726 decrease in net loss during the period was mainly associated with the conclusion of our drilling and mapping programs on our Farellon and Mateo properties, which resulted in decrease in mineral exploration and automobile expenses. The reduced advertising activity and restructuring our administrative operations also contributed to the overall decrease in our costs. These decreases were offset by the increases in our regulatory fees, salary and wage expenses as well as increased interest on the current debt with related parties.

 
12

 
 
Liquidity
 
GOING CONCERN

The consolidated financial statements included in this report have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. We have not generated any significant revenues from mineral sales since inception, have never paid any dividends and are unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our ability to achieve and maintain profitability and positive cash flow depends upon our ability to locate profitable mineral claims, generate revenue from mineral production and control our production costs. Based upon our current plans, we expect to incur operating losses in future periods, which we plan to mitigate by controlling our operating costs and sharing mineral exploration expenses through joint venture agreements.  At July 31, 2012, we had a working capital deficit of $1,940,013 and accumulated losses of $6,679,398 since inception. These factors raise substantial doubt about our ability to continue as a going concern. We cannot assure you that we will be able to generate significant revenues in the future. Our consolidated financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.
 
internal and external sources of liquidity
 
To date we have funded our operations by selling our securities and borrowing funds, and, to a minor extent, from mining royalties and geological services.

Sources and uses of cash

Six months ended July 31, 2012 and 2011
 
Table 5 summarizes our sources and uses of cash for the six months ended July 31, 2012 and 2011.
 
Table 5:  Summary of sources and uses of cash
   
July 31,
 
   
2012
   
2011
 
Net cash provided by financing activities
  $ 310,692     $ 1,907,000  
Net cash used in operating activities
    (167,965 )     (1,239,858 )
Net cash used in investing activities
    (112,283 )     (176,425 )
Effect of foreign currency exchange
    (11,395 )     (19,004 )
Net increase in cash
  $ 19,049     $ 471,713  

Net cash provided by financing activities. During the six months ended July 31, 2012, we received $150,000 on exercise of warrants for 500,000 shares at $0.30 per share. During the same period we issued 267,335 shares at $0.45 for cash proceeds of $120,301.

We borrowed $57,000 from a shareholder and $40,000 Cdn (approximately $39,944 US) from our CEO; and repaid $56,553 loan including accrued interest to a company owned by a significant shareholder.

During the six months ended July 31, 2011, as part of the private offering completed on April 7, 2011, we issued 6,290,000 units at $0.30 per unit, for cash proceeds of $1,828,099, net of $58,900 in commissions paid to agents, and 433,333 units at $0.30 per unit in payment of $130,000 in debt. Each unit consists of one share of our common stock and a two-year warrant exercisable for one share of our common stock at $0.50 per share.
 
 
13

 
 
We borrowed $11,000 from a shareholder, $70,000 US and $10,000 Cdn (approximately $10,454 US) from our CFO and recognized foreign exchange adjustment of $1,829 on $50,000 Cdn that we borrowed during the year ended January 31, 2011, from our CEO. We also repaid $14,382 in loans including accrued interest. See Non-cash financing transactions below.
 
Non-cash financing transactions. During the six months ended July 31, 2011, as part of the private offering completed on April 7, 2011, the Company’s CEO converted loans in the amount of $50,000 into 166,666 units and the Company’s CFO converted loans in the amount of $80,000 into 266,667 units.

We did not have any non-cash financing transactions during the six months ended July 31, 2012.
 
Net cash used in operating activities. During the six months ended July 31, 2012, we used net cash of $167,965 in operating activities. We used $694,391 to cover operating costs. This use of cash was offset by increases in our accounts payable and accrued liabilities of $56,492 and $42,475, respectively.  This increase was associated mainly with our exploration activities, preparation of the updated NI 43-101 report, as well as due diligence to list our stock on TSX Venture Exchange. We also increased accounts payable to related parties by $367,104 and recorded $9,774 in accrued interest on notes payable to related parties. Our prepaids and other receivables decreased by $41,248 which also contributed to a decrease in cash used in operations.

During the six months ended July 31, 2011, we used net cash of $1,239,858 in operating activities. We used $1,068,117 to cover operating costs and increased prepaids and other receivables by $27,911. We decreased accounts payable and accrued liabilities by $47,748 and $3,540, respectively. We also decreased accounts payable to related parties by $99,033. These uses of cash were offset by accrued interest on our notes payable to related parties of $3,318.
 
Net cash used in investing activities. During the six months ended July 31, 2012, we spent $112,283 acquiring mineral claims and paying property taxes associated with our mineral claims.

During the six months ended July 31, 2011, we spent $156,605 acquiring mineral claims and paying property taxes associated with our mineral claims. During the same period we used $19,820 to purchase a pick-up truck used in operations. 
Since inception through July 31, 2012, we have invested $1,289,322 acquiring our mineral claims and $19,820 for acquisition of other capital assets.

Unproved mineral properties

We have four active properties which we have assembled since the beginning of 2007— the Farellon, Perth, Mateo, and Veta Negra. These properties consist of both mining and exploration claims and are grouped into two district areas – Carrizal Alto area properties and Vallenar area properties.
 
 
14

 
 
Active properties

Table 6: Active properties
       
     
Hectares
 
Property
Percentage, type of claim
 
Gross area
   
Net area a
 
Carrizal Alto area
 
Farellon
             
Farellon 1 – 8 claim
100%, mensura
    66        
Farellon 3 claim
100%, pedimento
    300        
Cecil 1 – 49 claim
100%, mensura
    230        
Cecil 1 – 40 and Burghley 1 – 60 claims
100%, mensura in process
    500        
Teresita
100%, mensura
    1        
Azucar 6 – 25
100%, mensura
    88        
Stamford 61 – 101
100%, mensura
    165        
Kahuna 1 – 40
100%, mensura
    200        
        1,550       1,550  
Perth
                 
Perth 1 al 36 claim
100%, mensura
    109          
Lancelot I 1 al 30 claim
100%, mensura in process
    300          
Lancelot II 1 al 20 claim
100%, mensura in process
    200          
Rey Arturo 1 al 30 claim
100%, mensura in process
    300          
Merlin I 1 al 10 claim
100%, mensura in process
    60          
Merlin I 1 al 24 claim
100%, mensura in process
    240          
Galahad I 1 al 10 claim
100%, mensura in process
    50          
Galahad IA 1 al 46 claim
100%, mensura in process
    230          
Percival III 1 al 30 claim
100%, mensura in process
    300          
Tristan II 1 al 30 claim
100%, mensura in process
    300          
Tristan IIA 1 al 5 claim
100%, mensura in process
    15          
Camelot claim
100%, manifestacion
    300          
        2,404          
Overlapped claims a
      (121 )     2,283  
Vallenar area
 
Mateo
                 
Margarita claim
100%, mensura
    56          
Che 1 & 2 claims
100%, mensura
    76          
Irene & Irene II claims
100% ,mensura
    60          
Mateo 1, 2, 3, 9,10,12, 13, 14 claims
100%, mensura in process
    2,100          
Mateo 4 and 5 claims
100%, pedimento
    600          
        2,892          
Overlapped claims a
      (469 )     2,423  
                   
Veta Negra
                 
Veta Negra 1 al 7 claim
Option to purchase, mensura in process
    28          
Rosicler 1 al 7 claims b
Pedimento
    1,703          
Pibe
Option to purchase, mensura in process
    200          
        1,931          
Overlapped claims a
      (112 )     1,819  
                   
                8,075  
a Some pedimentos and manifestacions overlap other claims. The net area is the total of the hectares we have in each property (i.e. net of our overlapped claims).
b These pedimentos overlap other owners’ claims.
 
 
15

 
 
Our active properties as of the date of this filing are set out in Table 6. These properties are accessible by road from Vallenar as illustrated in Figure 1.
 
Figure 1: Location and access to active properties.

Farellon Property

Drilling. During June through September 2011 we conducted a combined RC/diamond drill program on the Farellon property. The program was designed to continue to expand on the results of the 2009 drill program, as well as to continue confirming historical results along the strike. During this program we completed 11 drillholes for a total of 2,233m. Significant results of assays are presented in the Table 7 below.

Table 7: Farellon drilling results (2011)
 
Assay interval (m)
Assay grade
Drill Hole ID
From
To
Length
Copper %
Gold g/t
FAR-11-001
36
49
13
2.51
0.35
FAR-11-001
78
85
7
0.43
0.04
FAR-11-002
No Significant Intersections . Zone faulted off
FAR-11-003
150
155
5
0.40
0.28
FAR-11-003
177
182
5
0.44
0.15
FAR-11-004
141
145
4
0.73
0.01
FAR-11-005
124
133
9
0.84
0.26
FAR-11-006
80
112
32
1.35
0.99
FAR-11-007
56
74
18
0.50
0.40
FAR-11-008
98
102
4
0.85
0.26
FAR-11-009
202
211.55
9.55
0.95
0.42
FAR-11-010
179.13
183
3.87
0.50
0.39
FAR-11-011
54
56
2
0.97
0.48
 
 
16

 
 
Figure 2 below illustrates the Farellon geology and the 2006, 2009 and 2011 drillhole collar locations as well as surface traces of mineralized vein systems:
 
Figure 2: Farellon property geology

QA/QC, sampling procedures and analytical methods. Samples were taken at intervals between 0.5 and 2 metres. Sampling started at the collar of the hole and proceeded to the toe or bottom of the drill hole.  Samples were taken at two metre intervals outside the previously identified main zone of interest.  Through the main zone of interest samples were taken at one metre intervals.   Generally, the sample recovery was good to excellent for the 2011 drilling program.

Table 7 above summarizes significant assay results.  They are reported as drill lengths as we have not established the width of the mineralized zone.

Our quality assurance, quality control (QA/QC) protocol consists of the addition of standards, blanks and laboratory duplicates to the sample stream. We inserted these into the sample series using the same number sequence as the samples themselves. One of the QA/QC check samples is inserted every 25 samples and it alternates between standards, blanks and laboratory duplicates.  
 
 
17

 

We commissioned Micon International Limited (“Micon”) to prepare an updated technical report that complies with Canadian National Instrument 43-101 summarizing the information obtained from the above drilling program. Micon concluded that our drilling program was successful in confirming and extending the mineralization both in the down dip direction and along strike.

Samples reviewed by Micon proved to be representative of the results encountered in the drilling program; our sampling procedures undertaken at the Farellon Property conformed to CIM Exploration Best Practices Guidelines to minimize any sampling bias.

Micon has reviewed the two-phased exploration program that we have proposed. The first phase of this program would consist of a 5,000m primarily infill drilling to flesh out the structural issues that have been noted in the previous two campaigns, as well as to test the primary mineralization at depth.  We have estimated the budget for the first phase of the program to be approximately $922,000.

If the first  phase  continues  to  return  positive  results,  a  second  phase consisting of a 15,000m  drilling  program would be conducted in order to test the extent of the mineralization down to a 400m depth and estimate an initial mineral resource. The budget for the second phase of the program is approximately $5.2 million.

Micon recommended that Red Metal conducts the exploration program as proposed, subject to funding and any other matters which may cause the proposed exploration program to be altered in the normal course of its business activities, or as a result of exploration activities themselves, and made the following additional recommendations: